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Partially Reining in Administrative Agencies

Today, the Supreme Court decided Christopher v. SmithKline Beecham Corp. The case concerns whether the Department of Labor can change a 70-year old regulation essentially on a whim. Cato joined the Washington Legal Foundation in a brief that urged the Court to affirm the Ninth Circuit’s holding that administrative agencies are not allowed to enact massive regulatory changes without sufficient notice. Today, the Supreme Court did just that.

For over 70 years, the Department of Labor (DOL) has exempted “outside salesmen” from overtime-pay requirements. Such traveling salesmen typically do not punch a clock and often put in more than 40 hours per week. The pharmaceutical industry uses traveling pharmaceutical sales representatives (PSRs) to demonstrate to doctors the benefits of various prescription medications. While these PSRs do not make direct sales, the DOL has long regarded the PSRs as “outside salesmen” who do not qualify for overtime pay. In 2009, however, the DOL filed an amicus brief in a Second Circuit case announcing they had changed the classification—for the first time, PSRs would not be exempt from overtime-pay requirements. The move was unexpected, to say the least. There are currently approximately 90,000 PSRs in the country, and such a significant rule change threatened to alter the pharmaceutical industry’s entire way of doing business.

But the high costs are only a small part of the problem. In our brief, we argued that allowing administrative agencies to promulgate a major rule changes in amicus briefs as part of a litigation strategy would give them even more arbitrary power than they already have. Courts already give agencies so-called Auer deference in interpreting their own regulations, but this would be taking that deference too far. Justice Samuel A. Alito, writing for five justices (Scalia, Thomas, Kennedy, and Chief Justice Roberts), agreed:

In this case, there are strong reasons for withholding the deference that Auer generally requires. Petitioners invoke the DOL’s interpretation of ambiguous regulations to impose potentially massive liability on respondent for conduct that occurred well before that interpretation was announced. To defer to the agency’s interpretation in this circumstance would seriously undermine the principle that agencies should provide regulated parties “fair warning of the conduct [a regulation] prohibits or requires.” … Indeed, it would result in precisely the kind of “unfair surprise” against which our cases have long warned…Our practice of deferring to an agency’s interpretation of its own ambiguous regulations undoubtedly has important advantages, but this practice also creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit, thereby “frustrat[ing] the notice and predictability purposes of rulemaking.” Talk America, Inc. v. Michigan Bell Telephone Co., 564U. S. ___, ___ (2011) (SCALIA, J., concurring)

The citation to Justice Scalia’s opinion in Talk America is interesting because in it Scalia expresses well-founded doubt that Auer should still be the law:

[W]hen an agency promulgates an imprecise rule, it leaves to itself the implementation of that rule, and thus the initial determination of the rule’s mean­ing. And though the adoption of a rule is an exercise of the executive rather than the legislative power, a properly adopted rule has fully the effect of law. It seems contrary to fundamental principles of separation of powers to per­mit the person who promulgates a law to interpret it as well. “When the legislative and executive powers are united in the same person, or in the same body of magis­trates, there can be no liberty; because apprehensions may arise, lest the same monarch or senate should enact ty­rannical laws, to execute them in a tyrannical manner.” Montesquieu, Spirit of the Laws bk. XI, ch. 6, pp. 151–152 (O. Piest ed., T. Nugent transl. 1949).

Deferring to an agency’s interpretation of a statute does not encourage Congress, out of a desire to expand its power, to enact vague statutes; the vagueness effectively cedes power to the executive. By contrast, deferring to an agency’s interpretation of its own rule encourages the agency to enact vague rules which give it the power, in future adjudications, to do what it pleases. This frustrates the notice and predictability purposes of rulemaking, and promotes arbitrary government.

Although SmithKline Beechum Corp. does not overturn Auer, it shows that Auer deference rests on a shaky footing with the current Court. Perhaps we’ll see an end to this unduly deferential standard in the near future.